Cablegate: Threats to Bonny Lng Project

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TO RUEHC/SECSTATE WASHDC PRIORITY 7031
INFO RUEHOS/AMCONSUL LAGOS 4978
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RUEATRS/DEPT OF TREASURY WASHDC

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USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS

E.O. 12958: N/A
TAGS: EPET EINV BEXP PGOV KCRM NI
SUBJECT: THREATS TO BONNY LNG PROJECT

1. (SBU) Summary: The project managers have shut down the $1.2
billion train six construction of the Nigeria Liquid Natural Gas
(NLNG) Plus Project on Bonny Island twice in the last two months due
to violence and sabotage. The project management, headed by a TSKJ,
a subsidiary of Kellog, Brown and Root (KBR), in turn a subsidiary
of Halliburton, said that if security were not restored, they might
pull out of the project. Given the current problems, TKSJ had
incurred costs that the project owners so far had not reimbursed,
causing them to lose tens of millions of dollars. The NLNG
corporation, a joint venture between the Nigerian National Petroleum
Company (NNPC), Shell and others, so far did not appear to take the
security problems seriously. TKSJ believed Rivers State Governor
Peter Odili had the means to settle many of the problems, and was
scheduled to meet him. TKSJ planned to restart work the week of
September 4, but would fire a large group of troublemakers,
institute strict security procedures, and greatly increase police
presence at the project. Current projections are for natural gas to
overtake oil as a revenue earner for Nigeria in the next decade, but
only if security problems do not derail project construction,
included a slated $5 billion expansion of the Bonny Island facility.
End Summary.

2. (SBU) On September 2, Joe Dougherty, TSKJ site resident manager
of the NLNG Plus project on Bonny Island called on the Ambassador to
discuss the security problems that had forced his company to shut
down work at the site twice in the last month. TSKJ is subsidiary of
Kellog, Brown and Root, a soon to be spun off subsidiary of
Halliburton. TKSJ is building train six of the NLG project and
operating the site during construction. The project currently loads
two tankers a week of LNG. Dougherty estimated that each tanker
produced a profit of $15 million, so losses are $30 million for each
week the project is shut down. The kidnapping of three Filipino
workers and labor unrest resulting in vandalism and sabotage at the
plant had forced them to shut down all work and lock down the site
twice in the last month.

3. (SBU) So far NLNG, the owner of the project, had not agreed to
compensate TSKJ for the losses incurred, nor did the owner or its
shareholders (NNPC and Shell) appear to take the security problems
seriously, dismissing them as local labor squabbles. Though
Dougherty agreed that the root of the problem was labor unrest, the
problems involved were serious. With death threats frequent, and an
actual kidnapping of expatriate personnel, the safety of project was
a real issue. The occupation of work sites and the damaging of
equipment could have even more serious consequences. In a natural
gas plant pressure imbalances could cause catastrophic explosions.
Finally, the company would have no incentive to continue work if
financial losses continued to mount. Most of worker demands did not
apply directly to their employer, but rather centered around taxes
and other deductions. In an earlier case, the governor agreed to
halve income taxes for the Bonny Island workers. Thus much of the
unrest is directed more at the state and federal government.
Jockeying for advantage and access to fees among the 22 local rulers
also might be a factor behind some of the trouble.

4. (SBU) Dougherty believed that Rivers State governor Peter Odili
had the most authority to resolve the issues and restore security.
TKSJ had scheduled meeting with the governor for August 31; that was
pushed back to September 5. TKSJ planned to resume operations at
Bonny Island the week of September 4, starting with the firing of
about 500 troublemakers. The remaining workers would be subjected
to drug screening, security searches and entering and leaving the
compound, and stricter access controls. To prevent the fired workers
from causing trouble, TKSJ planned to have a greatly expanded
presence of armed police. Drug screening could remove up to an
additional 1000 workers. All this would impact the project, which
was already short of about 1000 workers, but Dougherty expected that
eventually the jobs would be filled. Labor contracts were a chief
source of revenue for local leaders, who as labor brokers got a
percentage of the salary of each worker provided to the site. The
company's lawyer, who is a traditional ruler in neighboring Brass
Island, in a subsequent meeting with the Ambassador, said the
general atmosphere of lawlessness in the Delta was a factor behind a
standard labor dispute escalating into greater violence.

5. (SBU) If NLNG continued to balk at covering losses due to the
security problems and if Governor Odili failed to help reduce future
security problems, Dougherty said the company would look at pulling
out of the project. Further, they were preparing to bid on the work
of train seven and further expansion, slated to be up to $5 billion
of new investment, but would have to review their future plans.
Comment: Natural gas is set to overtake oil as Nigeria's largest
revenue earner within a decade. If unresolved, security problems in
the Delta could be a serious set back to the trend, and an obstacle
for U.S. investment and contracts in Nigeria. CAMPBELL

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